Over­com­ing hur­dles through qual­ity

RISKSA Magazine - - Medical -

Mish­nah Seth, head of Fron­tier Strate­gies at Mo­men­tum As­set Man­age­ment, ar­gues that com­pre­hen­sion of con­sumer dy­nam­ics is plainly nec­es­sary, mean­ing that as­set man­agers re­quire part­ner­ships with com­pa­nies that demon­strate in­sight are good al­lo­ca­tors of funds. Sus­tain­able dis­tri­bu­tion net­works are also im­por­tant in in­for­mal mar­kets. “The op­er­at­ing en­vi­ron­ment in the con­ti­nent is volatile, and it is im­por­tant to as­so­ciate with strong man­age­ment teams,” says Seth. “In­vest­ment man­agers need to as­sess whether or not a com­pany ‘de­liv­ers’ as brand loy­alty is clearly vis­i­ble in some coun­tries. With dis­pos­able in­come still lim­ited in many cases, con­sumers want to spend their money pru­dently.” Chal­lenges to ex­pan­sion on the con­ti­nent are largely due to in­fra­struc­ture con­straints in the wa­ter, power, hous­ing and trans­porta­tion sec­tors. Sim­i­lar ex­pan­sion is re­quired to mo­ti­vate growth at a lower costs in other ar­eas of many coun­tries’ economies. Ex­pan­sion in the con­struc­tion sec­tor is set to re­main ro­bust. “Although over­all liq­uid­ity re­mains a chal­lenge on the con­ti­nent, it is be­lieved that the re­gion will con­tinue to evolve and grow and, in the long term, reach lev­els en­joyed by other large fron­tier mar­kets. Op­er­at­ing en­vi­ron­ments are un­doubt­edly a chal­lenge and se­lect­ing com­pa­nies with qual­ity man­age­ment teams is key to in­vest­ment suc­cess,” Seth states.

Uganda: a case study

Ac­cord­ing to In­no­cent Ki­hika, CEO of Shonubi, Mu­soke & Co Ad­vo­cates, in­vestor in­ter­est in Uganda is peak­ing. Par­tic­u­larly Rus­sia, Europe, China and South Africa all have a stake in the coun­try al­ready. In Uganda’s boom­ing oil and gas sec­tor, around 30 in­ter­na­tional com­pa­nies are ex­pected to ex­press in­ter­est in bid­ding for ex­plo­ration blocks that gov­ern­ment is plan­ning to auc­tion off. Elec­tric­ity gen­er­a­tion is another pri­or­ity, ac­cord­ing to Ki­hika. “In­vest­ment in in­fra­struc­ture has taken off in Uganda and is likely to have a strong knock-on ef­fect,” added Noah Mwesigwa, part­ner at Shonubi Mu­soke. The in­fra­struc­ture boom is also ex­pected to ben­e­fit the bank­ing sec­tor. “There is a lot of in­ter­est from for­eign banks. The in­ter­est in pro­ject fi­nance and syn­di­cated loans is def­i­nitely pick­ing up and will con­tinue.” Sim­i­larly, de­mand for real es­tate is surg­ing. In the CBD of Kampala alone, there is a short­age of 300 000 hous­ing units, Mwesigwa said. “The Chi­nese have come in with money and there will be ben­e­fits for sub­con­trac­tors, and we also have de­vel­op­ers from Europe and other places in the con­ti­nent, in­clud­ing South Africa.” All in all, it is clear that the con­ti­nent is open for busi­ness and that in­vestors who do their home­work will not be dis­ap­pointed. As Peter Lloyd, part­ner at Gill, God­lon­ton & Ger­rans, puts it: “This is the time to get in. The boat is not to be missed.”

Miss­ing the boat

Yet op­ti­mism about the con­ti­nent’s po­ten­tial has not reached ev­ery cor­ner. Ac­cord­ing to a re­cent re­port by McKin­sey & Com­pany, the vast ma­jor­ity of in­ter­na­tional busi­nesses are still not sold on Africa’s in­vest­ment op­por­tu­ni­ties. One real rea­son for this is the fact that in­for­ma­tion costs are high. Africa is frag­mented and even in ag­gre­gate the con­ti­nent is a fairly small econ­omy. His­tor­i­cally, ig­no­rance on the side of the in­ter­na­tional in­vestor did not re­ally mat­ter. Most African economies were not re­ally in a good enough state to of­fer many op­por­tu­ni­ties for re­spectable firms. In spite of the fact that Africa is grow­ing with in­creas­ing ra­pid­ity, the or­gan­i­sa­tion pre­dicts that there will still be many in­vestors from the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD) com­mu­nity who will stay set in their ways, and who would po­ten­tially be miss­ing a gi­ant busi­ness op­por­tu­nity. How much of an op­por­tu­nity? “It is rea­son­able to sup­pose that what is ac­tu­ally un­der the soil in the av­er­age square kilo­me­tre of Africa is at least as valu­able as what is known still to be avail­able in the OECD. An im­pli­ca­tion is that once these un­tapped re­sources have been dis­cov­ered, Africa’s com­mod­ity ex­ports will be around five times their present level,” the re­port states in ref­er­ence to the po­ten­tial for min­eral re­sources alone. It adds that the growth of other sec­tors such as com­modi­ties ex­ports and con­struc­tion, as a re­sult of re­source de­vel­op­ment have al­ready per­formed even bet­ter than the re­source mar­ket, and would be likely to con­tinue do­ing so at an in­creas­ing pace. “At present, the typ­i­cal in­vest­ment port­fo­lio has mas­sive ex­po­sure to the OECD coun­tries and neg­li­gi­ble ex­po­sure to Africa. This looks un­likely to be ap­pro­pri­ate for the com­ing decades,” the re­port con­cludes.

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